Will We Become Cashless Society 3376


“Cash, in the form of notes and coins, will disappear within a decade”.

Suchdeclarations have been around for the past 60 years since the introduction ofcheques and bank cards in the 20th century, however they have becomeincreasingly numerous from finance experts in recent times due to newinnovative alternate technologies. These verdicts form a part of the warcurrently being waged on cash, by governments and organisations around theworld, in the hope of creating a cashless society. But is this push towards acashless society something we really want? Is cash really dying? Is it evenpossible to successfully implement a cashless society worldwide and if so, howlong will it take? These are just some of the queries I aim to answer in thisessay.

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Withnew alternatives for cash constantly making an appearance in news articles andbusiness journals etc, one cannot be blamed for believing cash is on the wayout. However, if you were to sit down and look at the statistics you may beginto think otherwise. They show that there has been a strong growth in the demandfor cash in the past and currently in the present. According to BBC writer RoseEveleth (2017): ‘cash in circulation grew 42% between 2007 and 2012, and theamount of American money floating around in bills and coins is expected to growby about 5% each year’. Furthermore, ‘As of 2013, approximately 85 percent ofthe world’s transactions involved cash’. (Manor, 2017). Clearly thesestatistics show that cash has in the past, and still to this day, remains animportant part of transactions. In contradiction to some experts views thatcash will disappear in the next decade. With all the benefits and advantages ofnew cash alternatives, why is the demand for cash continuing?

Firstly,cash offers strong privacy protection. It can be spent anywhere at any timewithout any third party being involved. There is no digital paper trail leftbehind for government, businesses or hackers to exploit. According to Lepecqand Holler (2017): ‘Digital payment systems, on the other hand, provide thecompanies managing them with information on users’ behaviour, which in turnshapes how they will be treated by not only payment providers but by merchantsand third parties who are able to access this information without thecustomer’s knowledge’.

Inaddition to this, people tend to feel more secure having cash on them in theirwallet or purse, rather in a bank or some other type of financial institutionwhich could be prone to hackers. It is estimated that approximately 43% oforganisations have had some sort of a security breach, including financial institutionssuch as Banks (Lepecq and Holler, 2017). In terms of privacy and security, cashis a lot more reliable than the newer alternatives. Until this trend begins tochange cash will not be disappearing. Consequently, the demand for cash hasremained strong over the last number of years.

Inclusionis another argument in support for keeping cash. With cash, you do notnecessarily have to own a bank account. You do not have to have access to acomputer, mobile device or have internet to make transactions. Since it is aphysical object anyone in the world can use it, regardless of their position insociety. You can be living on the streets with nothing to your name and stilluse cash. This is not the case with most of the contrasting options to cash. Byactualizing a plan to remove cash, you’re essentially introducing a policy ofexclusion. This can be backed up by statistics. According to The World Bank,there are nearly two billion people in the world who do not have a bankaccount. Most of the electronic alternatives to cash require you to have one.That’s two billion people who would be unable to make transactions in acashless society.

Anexample of a country that would be severely affected by a move towards acashless society would be India. According to policy analyst Anupam Manur (2017): ‘In India, the number of peoplewithout a bank account is about quarter of a billion’. That is almost 20% ofthe population. Furthermore ‘43 percent of the accounts in India are, in fact,dormant accounts’ and ‘as of April 2015, only 15% of adults in India reportedusing a bank account to make or receive payments (World Bank estimates)’(Manur, 2017). These figures show that in contrast to what experts believe,cash is not dying, and it remains an essential method of transaction for peopleat present. Abolishing cash would alienate entire sections of Indian society.There are people who do not have access to financial services. Furthermore,there are people who would not be able to gain access to a bank account. Theillegal immigrant who fled their country due to war or violence, in the hope ofhaving a better life; homeless people who are constantly traveling and do nothave a permanent address, contact number or email; people with a history offailed payments or a bad credit rating.

Furthermore,negative interest rates are also preventing a move towards a cashless society.Most people would like to be able to withdraw cash from their bank accounts andstore it at home in case interest rates were to fall below zero. In thisscenario customers of banks would essentially be paying the bank a tax to savetheir money instead of spending it. In a cashless society banks would have fullcontrol and the customers would be helpless and would have to accept the lossesthey would be making.

Moreover, at various times throughoutthe course of history, countries have used cash as a means of reducing nationaldebt. ‘In a cashless society, this important macroeconomic tool would no longerbe available to governments. With a digital economy, this would become harder,if not impossible. The only possible tool that the government will have toincrease the money supply in the economy would be to issue bonds and bills,which will increase its debt obligations’ (Manur, 2017).

The threat of censorship is alsoslowing the movement towards a cashless society. If all payments were to bemade electronically, governments in countries around the world would have anoverwhelming amount of power. Banks would be able to see what your spendingyour money on, then if they wished, they could ban a certain good or productvia a totalitarian regime. Undesirably, this has already happened in Uganda in2016. Banks shut down the usage of mobile money during elections. According to AnupamManur (2017): ‘The fear was that the opposition could use the mobile moneynetworks to pay voters. However, certain analysts insist that the real reasonwas to block donations to the opposition party.’ A similar event happened when‘Bank of America, VISA, MasterCard, PayPal and Western Union made an arbitraryand seemingly unlawful blockade on donations to the Wikileaks page, which hasseen its revenue dip by over 95%’ (Manur, 2017). With very little regulation oncash alternatives currently, banks could run riot with their new-found power.

The demand for cash has grown up to now, however, this may not continue. It relies upon many factors. Firstly, there are various nations across the world that have effectively implemented an alternative to cash in the form of mobile payments. An example of such a country would be Sweden. ‘Sweden is the most cashless society on the planet, with barely 1% of the value of all payments made using coins or notes last year’ (Savage, 2017). Furthermore, cash only accounts for less than 20% of the transactions carried out in stores in Sweden, which was previously at 40% five years ago. If there is any country worldwide that is likely to become a cashless society of the next decade, it is Sweden. So why has Sweden been so successful in eliminating cash? This is largely due to mobile apps such as ‘Swish’. This mobile payment app allows you to spend and transfer money using your phone number. It is used by over 5 million people in Sweden which is close to half of the population and is backed by major banks. Bus companies, some bars and shops in Sweden no longer accept cash, due to the fear that they might be robbed. Sweden is not the only country to adopt new payment technologies.

Cash is also on the way out in China.According to CNBC writer Evelyn Cheng, the lack of regulation in China regardingelectronic payments has allowed mobile payment technology to become widespreadacross the country. Last year, mobile payment technology volume doubled to 5trillion US dollars.  There are twomobile payment companies that together, hold over 90% of the market share inChina. These are ‘Wechat pay’ and ‘Alipay’. Furthermore, in the article Chengstates: ‘WeChat messaging app from Chinese technology giant Tencent reached 963million monthly active users in the second quarter’ and ‘Alipay, which is ownedby Alibaba affiliate Ant Financial Services, has 520 million users’. That is anenormous amount of China’s population that are using alternatives to cash whenmaking transactions. Taxi company Didi and various bike rental companies arealso taking advantage of the rise in mobile payments in China. Didi took overUbers operations in China last year after acquiring it for 35 million USdollars. They are operating in conjunction with Wechat pay and it is impossibleto pay for one of their taxis with cash. QR codes are also being placed onrental bikes in China, which allow customers to pay for them using mobilepayment technology.

Another country that has successfullyimplemented alternative payment technologies is Kenya. In 2007 the countryadopted the first mobile payment system to be used in Africa, called M-PESA.Since its introduction it has been making saving and spending money easier forhouseholds across the country. ‘When it was launched the average distance tothe nearest bank was 9.2 kilometres. Eight years later in 2015 the averagedistance to the nearest M-PESA agent was a mere 1.4 kilometres’ (Logan, 2017).The introduction of M-PESA has also reduced transaction costs, poverty, crimeand corruption. Since all financial transactions are online, and a password canbe placed on mobile devices and accounts, people are less likely to be victimsof crime such as robbing as stealing. Similarly, corruption can be easilyspotted in electronic payments as banks have access to people’s transactionhistory. According to a recently published study by sicencemag.org, Almost 2%of households in Kenya (approximately 194,000) have escaped extreme poverty dueto the introduction of electronic payment technology. There are other factorsaffecting the future rate of growth in demand for cash as well.

For instance, Cryptocurrencies arebasically cash in a digital format. If cryptocurrencies such as Bitcoin,ethereum and ripple, start to be adopted and accepted as legitimate methods ofpayment. It is possible we will see a reduction in the demand for cash, andpotentially a completely cashless society later down the line. While there arebenefits to replacing cash with cryptocurrencies such as removingintermediaries and thus reducing costs, there are also some worries preventinga fast transition during the next decade. For example, governments across theworld could lose control of their economies, not being able to print money orregulate currencies. Furthermore, if cryptocurrencies were to replace cash entirely,the value of cash would decrease dramatically and the transition from acash-based society to a crypto-based society would be difficult. It would alsoresult in many people losing money previously invested in cash-related assets.

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Another factor determining the futureof cash would be government intervention in relation to cash alternatives suchas cryptocurrencies and mobile payments. At present, governments have donelittle or nothing in terms of regulating these new technologies, however it ispossible that they will begin to intervene more once there is a seriouspossibility of cash being replaced.  Forexample, they may decide to ban or impose taxes on certain cryptocurrencies andthere is a chance that they could replace cash. This is because cryptocurrencieslike bitcoin are bought and sold via the blockchain. The blockchain is theinfrastructure that stores information across a network of computers, makingthe blockchain de-centralised. This means that nobody owns it, not even thegovernment, however everyone can still use it. Due to this loss of control, itis highly unlikely that the government will ever support cryptocurrencies andallow them to replace fiat cash. In fact, countries such as Bangladesh,Bolivia, Ecuador, Kyrgyzstan, and Nepal have banned cryptocurrencies.

Then if cash is replaced by mobile payment applications, governments might start cracking down on corruption and the black-market. As all transactions will be online and thus it will be easier for governments to collect information on your spending habits. Unlike cryptocurrencies, governments might be in favour of mobile payments replacing cash. This leads us onto the next factor that will determine the future of cash – retailer and financial institution preferences.

The retailers have arguments for andagainst the implementation of a cashless society. They would benefit from nolonger accepting cash as it would greatly reduce the possibility of storesbeing robbed. Burglars can’t take cash out of a till if there is no cash in thetill in the first place. Furthermore, employees would not be able to steal fromtheir employers by taking money out of the till.  Both scenarios are real-life problems thatretailers around the world face on a daily basis. However, retailers will notinvest in the technology required to accept mobile payments and other cashalternatives unless there is enough customers willing to make transactionswithout cash. It’s like a chicken and an egg- One of them must come firstbefore the other can happen. Be it customers becoming more open to a worldwithout cash, or retailers taking a risk and investing in alternative paymenttechnologies. At the moment, we are in a deadlock, with neither willing tobudge. However, if in the future one of them decides to make the first move, itcould lead towards a chain effect with others following suit. Ultimately,resulting in society taking one more step towards the abolition of cash. 

But what about the preferences of financial institutions? It turns out they are in a similar situation to retailers. They also have arguments in favour, and against a cashless society. Take for example, the cost of cash. According to a study carried out by Prof Bhaskar Chakravorti and Dr.Benjamin D. Mazzotta, Cash costs the US government around 200 billion every year. This is illustrated in the diagram, taken from their study, shown below:

For the government, most of their losses in cash are related to tax evasion. For businesses, most losses come from retail theft, and for individuals most losses come from the time spent getting cash. In the study, Prof Bhaskar Chakravorti and Dr.Benjamin D. Mazzotta also discovered that the average American spends around 28 minutes a month traveling to banks and ATM’s to get cash, which adds up to around 5.6 hours per year. Furthermore, it is very expensive to print cash, store it, and to then distribute it safely and securely. In addition to those costs you also must factor in the costs of setting up an ATM and running it. In a cashless economy, none of these expenses would exist. The main problem financial institutions have with alternatives to cash is regulation. If regulation that allows financial institutions, such as central banks, to remain in control of these new alternatives to cash, is introduced, then financial institutions shall certainly support and try to implement a cashless society.

Furthermore, socio-Economic developments have in the past, and will in the future have an influence on demand for cash. The Västberga heist is a perfect example. In this heist 7 men planned and executed a robbery of cash, the equivalent of 6.5 million US dollars. All seven men were later found and arrested however the 6.5 million in cash was never found. This planted doubt in the minds of people around the world, in relation to the security of cash. Events like this encourage a movement towards a cashless society. If cash never existed bank robberies like the Västberga heist would never be able to occur. Another event would have been the great recession in 2007-2009. After this event people began to lose faith in banks and no longer felt like their money was secure. As a result, banking regulation became stricter. It has left a scar with people around the world and a distrust with banks that has slowed a possible transition away from cash. People don’t like the thought of a society where all money was electronic, and where you would be unable to withdraw your money from a bank account and save it in cash ‘under the mattress’ at home.

Security will probably be thedeciding factor in the war for cash. Presently, people are unsure about howsecure their money would be in a cashless society, where everything iselectronic. Most organisations have been hacked at some stage throughout theirlifetime and people fear that a society that is based around electronic money,could end up having disastrous implications if hackers were successful. Tofurther this uncertainty, since most alternatives to cash are electronic, suchas mobile payments and cryptocurrencies, there would be catastrophicimplications in power outage situations. Since there are multiple naturaldisasters, wars and sometimes solar flares, around the world every year. Poweroutages are inevitable. In an economy or society that relied only on electronicmoney, a power outage would be calamitous. People would not be able to pay forgoods and services. If back up files were lost you would have no way of provingyou had 20000 euro in your bank account. The affected areas would come to astandstill with potential riots and break-ins to stores by people to get whatthey need to survive. In a situation where a power outage lasts a couple ofweeks or months, with no payments coming through, who’s to say police wouldcontinue to work and enforce order? The affected areas could turn into a warzone where its survival of the fittest.

The final factor that will determinethe future of cash is the people’s opinion. At the end of the day, if thepublic doesn’t believe that implementing a cashless will be beneficial, then itwon’t happen. Governments cannot demonetise fiat money without the public’ssupport. Alternatives to cash cannot be successful without customers. It is upto these institutions and organisations to find solutions to societies worries,about living in a society where cash is worthless.

To conclude, there are many problemsto be addressed before any sort of a transition is made away from cash. Whileit is quite possible that one day electronic money will become the dominantform of payment in the world, it is highly unlikely that society will becompletely cashless. Certainly, the cashless revolution has been overhyped.Cash will still be around in a decade from now, perhaps with even strongerdemand than there is currently, considering the continuous growth there hasbeen in the demand for cash over the last number of years. And when the daycomes that technology such as mobile payments or cryptocurrencies overlaps cashas the dominate form of payment, cash will still have a role to play in in oureconomies in some shape or form.


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